Archives For clearance

Credit where it’s due — the FTC has closed its investigation of the Men’s Warehouse/Jos. A. Bank merger. I previously wrote about the investigation here, where I said:

I would indeed be shocked if a legitimate economic analysis suggested that Jos. A. Banks and Men’s Warehouse occupied all or most of any relevant market. For the most part — and certainly for the marginal consumer — there is no meaningful difference between a basic, grey worsted wool suit bought at a big department store in the mall and a similar suit bought at a small retailer in the same mall or a “warehouse” store across the street. And the barriers to entry in such a market, if it existed, would be insignificant. Again, what I said of Whole Foods/Wild Oats is surely true here, too:

But because economically-relevant market definition turns on demand elasticity among consumers who are often free to purchase products from multiple distribution channels, a myopic focus on a single channel of distribution to the exclusion of others is dangerous.

Despite limited competition from the Internet, the transaction is not likely to harm consumers because of significant competition from other sources. As in all transactions, FTC staff examined which product markets were likely to be affected and what the competitive landscape looks like in those markets. There were two such markets in this matter: (1) the retail sale of men’s suits and (2) tuxedo rentals. With respect to men’s suits, there are numerous competitors that sell suits across the range of prices of the suits the merging parties offer, including Macy’s, Kohl’s, JC Penney’s, Nordstrom, and Brooks Brothers, among others. The two firms also have different product assortments that reflect their different customer bases. Men’s Wearhouse, which sells branded and private-label suits, has a younger, trendier customer set, while Jos. A. Bank, which sells private-label suits only, has an older, more traditional customer base.

establish, among other things, a procedure for the automatic withdrawal of an HSR filing upon the submission of a filing to the U.S. Securities and Exchange Commission announcing that the notified transaction has been terminated.

The proposed rulemaking appears to be a solution in search of a problem. The Federal Register notice states that the proposed rules are necessary to prevent the FTC and DOJ from “expend[ing] scarce resources on hypothetical transactions.” Yet, I have not to date been presented with evidence that any of the over 68,000 transactions notified under the HSR rules have required Commission resources to be allocated to a truly hypothetical transaction. Indeed, it would be surprising to see firms incurring the costs and devoting the time and effort associated with antitrust review in the absence of a good faith intent to proceed with their transaction.

The proposed rules, if adopted, could increase the costs of corporate takeovers and thus distort the market for corporate control. Some companies that had complied with or were attempting to comply with a Second Request, for example, could be forced to restart their antitrust review, leading to significant delays and added expenses. The proposed rules could also create incentives for firms to structure their transactions less efficiently and discourage the use of tender offers. Finally, the proposed new rules will disproportionately burden U.S. public companies; the Federal Register notice acknowledges that the new rules will not apply to tender offers for many non-public and foreign companies.

Given these concerns, I hope that interested parties will avail themselves of the opportunity to submit public comments so that the Commission can make an informed decision at the conclusion of this process.

Apparently none of the other commissioners shared his concerns. But they remain valid. Most importantly, the amendments were adopted without a shred of evidence to suggest they were needed or would be helpful in any way. As Josh says in his dissent:

It has long been accepted as a principle of good governance that federal agencies should issue new regulations only if their benefits exceed their costs….However, I have not seen evidence that any of the over 68,000 transactions that have been notified under the HSR Rules has resulted in the allocation of resources to a truly hypothetical transaction.

In the absence of evidence that the automatic withdrawal rule would remedy a problem that exists under the current HSR regime, and thus benefit the public, I believe we should refrain from creating new regulations.

For what it’s worth. the single comment received by the Commission on the proposed rule supported Josh’s views:

Although the rule may prevent such inefficiency in the future, it would also require companies to incur substantial costs in premerger negotiations and resource allocation while waiting for FTC approval during the HSR period. Currently, firms can avoid such costs by temporarily withdrawing offers or agreements until they are assured of FTC approval. Under the proposed rule, however, doing so would automatically withdraw a company’s HSR filing, subjecting it to another HSR filing and filing fee.

Presumably the absence of other comments means the business community isn’t too concerned about the amendments. But that doesn’t mean they should have been adopted without any evidence to support the claim that they were needed. I commend Josh for sticking to his principles and going down swinging.

First, Google had the audacity to include a map in search queries suggesting a user wanted a map. Consumers liked it. Then came video. Then, they came for the beer:

Google’s first attempt at brewing has resulted in a beer that taps ingredients from all across the globe. They teamed up with Delaware craft brewery Dogfish Head to make “URKontinent,” a Belgian Dubbel style beer with flavors from five different continents.

No word yet from the Google’s antitrust-wielding critics whether integration into beer will exclude rivals who vertical search engines who, without access to the beer, have no chance to compete. Yes, there are specialized beer search sites if you must know (or local beer search). Or small breweries who, because of Google’s market share in search, cannot compete against Dogfish Head’s newest product. But before we start the new antitrust investigation, Google has offered some new facts to clarify matters:

Similarly, the project with Dogfish Head brewery was a Googler-driven project organized by a group of craftbrewery aficionados across the company. While our Googlers had fun advising on the creation of a beer recipe, we aren’t receiving any proceeds from the sale of the beer and we have no plans to enter the beer business.

Whew. What a relief. But, I’m sure the critics will be watching just in case to see if Dogfish Head jumps in the search rankings. Donating time and energy to the creation of beer is really just a gateway to more serious exclusionary conduct, right? And Section 5 of the FTC Act applies to incipient conduct in the beer market, clearly. Or did the DOJ get beer-related Google activities in the clearance arrangement between the agencies?

Like this:

One additional observation on the WSJ story Paul mentioned. Much has been written about the strained relationship between the FTC and DOJ in antitrust matters. There has, of course, never been a more descriptive and entertaining version of these tensions than the one offered by former Chairman and now Commissioner Kovacic who observed that the so-called sister agencies amounted to “an archipelago of policy makers with very inadequate ferry service between the islands” where “too many instances when you go to visit those islands the inhabitants come out with sticks and torches and try to chase you away.”

Its been awhile since that particular description, but the quotes in the Journal article really suggest a remarkable level of tension between the agencies. Consider:

Commissioner Rosch describing the DOJ as “an arm of the administration,” that “can and will enforce the antitrust laws only insofar as that is consistent with administration policy;” or

Even going so far as to question whether AAG Varney was able to take an unbiased view of health care related matters because of her past representation of the American Hospital Association.

Fairly serious stuff. Perhaps the Commissioner and AAG just need some topic upon which they can both agree?

The inter-agency clearance fights, and especially the high-profile ones that bring out the sticks and torches, significantly undermine the mission of antitrust enforcement institutions. Commissioner Kovacic closes the article with the basic, but critical point: “The fact and appearance of a contest are bad for the coherence,” says Mr. Kovacic. “If you develop a perception that you’re going to get different outcomes depending on where [a deal] goes, your system suffers.”

Thank you to @senorrinhatch for recognizing that "uncertain patent rights will lead to less innovation because drug companies will not spend the billions of dollars it typically costs to bring a new drug to market..." https://truthonthemarket.co